The separation of Fairfax and Domain: Where does that leave Fairfax?

Following on from Fairfax Media’s announcement it will spin off its real estate business Domain as a separately-listed ASX entity, Miranda Ward asks what the move will mean for Fairfax?

Fairfax Media has taken the first step in separating its real estate business Domain Group out and listing it on the ASX. Greg Hywood, boss of the publishing company, said the time was right, telling investors Domain was an established business so it is now “less reliant” on Fairfax. But what Hywood didn’t mention was how reliant Fairfax as a company has become on Domain’s revenue to offset trouble in the traditional arms of the business.

Financial results for Fairfax demonstrate Domain’s role as the company’s earnings driver – the figures for the six months ended December 31, reported yesterday, saw Domain Group post the largest earnings before interest, tax, depreciation and amortisation (EBITDA) of the company, at $57.3m. Domain Group was also one of only two divisions to post growth in revenue (the other being Macquarie Media), while the Metro Media saw its revenue decline by 8.2% year-on-year.

Hywood is right, it is clear Domain is not reliant on Fairfax anymore. It is time the real estate listings business gets its own valuation. But where does that leave Fairfax?

Fairfax will retain a 60-70% stake in Domain when it completes its separation (subject to approval from shareholders), setting up a similar structure to what News Corp has with Domain’s main rival REA Group – of which News Corp retains about 60%.

And with Fairfax holding a 50% stake in streaming service Stan and a majority stake in ASX-listed Macquarie Media, it seems Fairfax could be looking to mimic News Corp in more ways than one and start to invest more widely in the media and marketing space. News has a stake in Foxtel, a stake in ad-tech company AppNexus and owns the likes of Storyful and Unruly. It could also see Fairfax look to create a similar, but more media-focused, model to that of Seven Holding Group which has investments in Seven West Media and various industrial companies.

And that brings us to Nine.

There has been a lot of speculation of a further tie-up between Nine and Fairfax and it is understood the broadcaster will continue to work with Fairfax where it makes sense. And while there are certainly areas where Nine and Fairfax working together could work, the question has to be asked, why would Nine even want the papers?

Looking at the numbers for the Australian Metro Media division within Fairfax which includes the Australian Financial Review, The Sydney Morning Herald, The Age, Digital Ventures, Life and Events, expenses grew by 7.6% while revenue declined by 8.2%. And if Credit Suisse analyst Fraser McLeish is correct – the newspapers’ value is now questionable. Ironically, McLeish was quoted in the SMH as saying the newspapers are worthless and could cost Fairfax $300m to shut-down.

And in 2014, then CEO of Nine, David Gyngell made it categorically clear that he had no interest in print.

Former Nine boss David Gyngell: We will not be in print

“We will not be print. If it is printed we are not going near it,” he told an investor briefing.

“On my watch there will be nothing printed. If they want to buy our company for a big premium then ok, but I’m not running anything that is printed.”

Even though Hywood yesterday reaffirmed the publisher’s commitment to print for the foreseeable future, the Domain announcement has pushed the message home: Fairfax Media is changing and it will no longer be the same publisher consumers have grown up with. It is looking to change and it has recently started making the necessary internal decisions, and changes, it feels it needs to in order to survive.

It brought Chris Janz in to drive the Metro division, making its digital ambitions, and the need to succeed in digital, a key focus for the future.

Fairfax also restructured its newsrooms with the resignation of SMH editor-in-chief Darren Goodsir and no replacement to that position, with the papers now being led by a team of three. More changes to the newsroom – as the company looks to cut back on costs and shift to embrace a digital future – will be expected, and this will most likely be a period of further pain for the publisher following on from job cuts early last year.

And the pain of declining advertising revenues, declining print circulation and potential job cuts will no longer be as easily offset by positive news out of Domain. Shifting Domain out is going to put the spotlight firmly back on the newspaper assets and how the company can – or can’t – make them work.

Today’s Domain announcement was big and the separation of the company out of Fairfax will be a challenge, but for Fairfax the bigger challenge – in proving it was the right call for the rest of the company, not just Domain – lies ahead.


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